United States: U.S. Supreme Court Ruling - ERISA Equitable Relief Not So Equitable?

Summary

On January 20, 2016, the United States Supreme Court ruled in Montanile v. Bd. of Trs. of Nat'l Elevator Indus. Health Benefit Plan that when an ERISA plan participant obtains a settlement fund from a third party, but spends the settlement on nontraceable items (like food or travel), a plan fiduciary cannot recover from the participant's remaining assets the medical expenses it paid on the participant's behalf.

The Court resolved a split among the circuit courts regarding an ERISA plan fiduciary's right to enforce an equitable lien against a participant's general assets – when the particular settlement fund to which the lien initially attached has been dissipated. The Court agreed with the circuits that had held an ERISA plan fiduciary cannot seek reimbursement from a participant's general assets, explaining that the plan's lien can only be enforced against a specific fund or traceable property that the participant possesses at the time the plan's claim is filed. This is contrary to the more plan-friendly view that would allow reimbursement out of a participant's general assets on the basis that dissipation of the specific fund to which the equitable lien attached cannot destroy the underlying reimbursement obligation.

What Does this Mean?

The Court's ruling primarily affects claims paid by an ERISA health plan for medical expenses incurred as a result of a personal injury involving an at-fault third party (e.g., car accidents). Most health plans have subrogation clauses that allow the plan to seek reimbursement for those medical claims if the injured person later recovers from the at-fault party. However, if the injured person spends the funds received from the at-fault party, the plan will not be able to enforce its reimbursement claim unless it can trace the funds to specific property.

The moral of the story is that self-insured plans that wish to enforce their subrogation and right of recovery rights must act quickly before the proceeds from any law suit against a third party to recover the medical expenses have been commingled with the plan participant's other assets. The plan's equitable lien is against the "fund." Once the "fund" is gone (or can't be "traced" to other specific property), the equitable lien is also gone. Therefore, health plans will need to evaluate and potentially adapt their administrative subrogation practices to ensure efficient detection, tracking and responses to claims and payments for personal injuries.

Additionally, sponsors of ERISA pension and disability plans should monitor the impact, if any, of the Court's ruling on these plans. For example, it remains to be seen if the same tracing requirement that applies to third party settlements in the subrogation context extends to overpayments from pension and disability plans.

Lastly, the Court's ruling could spur legislative initiatives to expand the ERISA remedies available to plan fiduciaries.

Plan sponsors should note that previous Supreme Court cases decided in the past several years have provided instructive guidance on the plan and summary plan description language needed to establish a subrogation or recovery right. This case narrowly defines the property against which those rights may be exercised.

The details of the case are described below.

Background

Robert Montanile was a participant in an ERISA health plan administered by the Board of Trustees of the National Elevator Industry Health Benefit Plan (the "Plan"). In December 2008, Montanile was hit by a drunk driver, and the Plan paid more than $120,000 for his medical expenses. When Montanile later obtained a $500,000 settlement for his injuries, the Plan sought to enforce its subrogation provision – pursuant to which amounts recovered by a participant from another party were to be used to reimburse the Plan for claims paid on the participant's behalf. However, Montanile's attorney argued that the Plan was not entitled to any recovery. When the parties failed to reach an agreement, Montanile's attorney informed the Plan that he would release the remaining settlement fund to Montanile if the Plan did not object within 14 days. The attorney then distributed the settlement fund to Montanile after the Plan failed to object within that time frame. Montanile received $240,000 (the other $260,000 having been paid to his attorneys), most of which he spent on nontraceable items.

Six months later, the Plan sued Montanile for repayment under section §502(a)(3) of ERISA. In response, Montanile argued that the Plan could only attach settlement funds that were still in his possession, or the traceable proceeds of such funds. In this case, since he had spent almost all of his settlement funds, he contended that the Plan could not attach his other assets to satisfy its claim, because such a claim would not be "appropriate equitable relief" under §502(a)(3) of ERISA.

Analysis

The issue before the Court was whether or not the reimbursement the Plan was seeking from Montanile constituted a "legal" or an "equitable" remedy, a critical distinction since the only remedy available to ERISA plan fiduciaries is "appropriate equitable relief" within the meaning of §502(a)(3). The Court has previously addressed the scope of §502(a)(3) relief on a number of occasions. According to its precedent, "equitable relief" is limited to those categories of relief that were typically available in equity during the days of the divided bench (i.e., the period before 1938 when courts of law and equity were separate). Generally speaking, that means an ERISA plan fiduciary can only recover from specifically identifiable funds in the possession and control of a participant. In this case, Montanile was in possession and control of the funds the Plan was seeking but by the time the Plan filed its §502(a)(3) claim, Montanile had largely spent those funds. The question, therefore, for the Court was whether or not the Plan could enforce its equitable lien (created by the Plan's subrogation clause) against Montanile's general assets.

The Court turned to standard equity treatises to answer this question and explained that a participant's expenditure of the entire identifiable fund on nontraceable items (like food or travel) destroys an equitable lien – even though the participant's conduct is wrongful. According to the Court, "equitable remedies are, as a general rule, directed against some specific thing . . . rather than a right to recover a sum of money generally out of the defendant's assets." Under this reasoning, once Montanile spent his settlement fund on nontraceable items, there was no longer a specific thing against which the Plan could enforce its equitable lien and therefore, the Plan's lien was destroyed, leaving only a personal claim against Montanile's general assets. Recovering out of those assets, however, is a legal remedy - beyond the scope of "appropriate equitable relief" under §502(a)(3) of ERISA.

Based upon the foregoing, the Court reversed the lower courts' rulings in favor of the Plan. However, the Court noted a factual dispute as to whether or not Montanile spent his entire $240,000 settlement on nontraceable items and therefore remanded the case back to the District Court to determine whether or not Montanile has any remaining separately held funds or traceable proceeds from which the Plan might recover.

Should your organization need further advice or assistance analyzing the subrogation and recovery process and administrative contracts with third parties, please contact any of the lawyers in our Employee Benefits and Executive Compensation practice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Proskauer Rose LLP
Wilson Elser Moskowitz Edelman & Dicker LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Proskauer Rose LLP
Wilson Elser Moskowitz Edelman & Dicker LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions